U.S. tight oil boom takes shine off oil sands

CALGARY — Alberta’s landlocked bitumen reserves stand to lose their allure as China’s state-backed oil giants pour money into the light oil renaissance underway in pockets of the United States.

The boom in so-called tight oil attracted US$41-billion in capital investment last year and could reach US$72-billion by 2020, according to the American Petroleum Institute. The total rivals the $23-billion spent in the oil sands last year and may help coax hundreds of thousands of additional barrels of light oil from North Dakota’s Bakken field, the Eagle Ford play in Texas and California’s Monterey shale.

The discovery of tight oil has been a confidence booster for the United States, promoting talk of energy independence from the old, Saudi Arabia-centred oil establishment, as well as reduced need for Canada’s oil sands.

China’s state-controlled companies have poured more than US$5.5-billion into U.S. shale oil and gas plays since 2008 through joint venture deals, according to data compiled by the U.S. Energy Information Administration.

The investment, although just a fraction of the estimated $30-billion spent on Canadian energy assets during roughly the same period, may increase as China’s search for technical know-how needed to unlock domestic shale resources intensifies, said J.J. Chen, a former oil trader with Nexen Inc. with deep ties in the Pacific region.

“It’s a competition between Canada and the U.S.” for capital, he said Monday on the sidelines of an energy conference in Calgary. “Just look at it as an investment in their portfolio. Whatever gives them the best return, they will go for it.”

Investment in U.S. shale plays totaled US$133.7-billion between 2008 and 2012, the EIA said this month. The figure included 73 joint venture deals, with foreign companies accounting for 20% of the total.

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From an export perspective, “Canadian oil and gas is a nice thing to have, but it’s not a must” for China, which is eager to diversify its energy portfolio by sourcing a “basket” of different crude blends from around the world, Mr. Chen said.

“If you cannot get to tidewater, then Canada becomes the last one into that basket,” he said.

It’s not just Chinese companies that are eager to get in on the U.S. energy boom. Indian firms, long rumoured to be eyeing minority stakes in Alberta oil sands, have spent US$3.55-billion over the same period on joint ventures.

Japan’s energy companies, which are active in British Columbia’s shale gas fields, have paid out more thans US$5.3-billion, while U.K.-based players including BG Group and BP Plc have put up a combined US$3.95-billion.

The investments come with U.S. oil production on track to surpass 7.3 million barrels a day this year, from an average of 6.5 million barrels last year.

Led by continued Bakken growth, U.S. oil output could jump by another one- to two-million barrels per day in the next three or four years, said Geoffrey Brand, a senior economic advisor with the API.

The pace is accelerating such that “the tight oil production in the U.S. might actually become refinery constrained sooner than imports from Canada,” Mr. Brand said in an interview.

With export constraints on Canadian bitumen, it’s “not surprising” that China’s interest in the oil sands has waned, said Peter Howard, president and chief executive of the government- and industry-funded Canadian Energy Research Institute.

“They don’t understand why you can’t build a pipeline,” he said.

Domestic companies such as Imperial Oil Ltd. and Cenovus Energy Inc. are still investing in project expansions, Mr. Howard added, “but one thing we are noticing is the projects in the next wave are starting to be pushed down a little bit.

“There’s a delay mechanism that, I think, is 100% to do with pipelines.”